SANTA ANA – City officials announced the resignation Thursday of City Manager Paul M. Walters.

“The Santa Ana City Council has agreed to accept the resignation of its city manager, effective Friday,” said a city release. “Pending finalization of an agreement to that effect, Mr. Paul Walters will continue to serve the city as a law enforcement liaison, functioning in the role of a police commissioner with the specific duties to be determined by the city’s police chief and city manager.”

The mayor issued a statement praising Walters, who before his appointment as city manager last year was the city’s police chief.

“Mr. Walters has served this city very well for many, many years,” said Mayor Miguel Pulido, “and we are particularly appreciative of his leadership to the city and community during his tenure as city manager. Mr. Walters worked closely with the City Council in handling some difficult financial issues, and we are grateful for his service.”

The city will embark on finding a replacement, he said in his statement.

“Selection of a permanent city manager will be a top priority of the council in the near future,” Pulido said, “as our prime objective will be to continue our leadership in developing goals and strategies for the council and the staff to accomplish together.”

Councilman Sal Tinajero, the mayor pro tem, said that more details would be released soon.

“Next week, we should have more detailed information,” he said. “We’re going to go ahead and embark on a search for a short-term interim city manager while we move forward on a national search for a permanent city manager.”

That interim appointment, he said, could come from within City Hall or from outside. The appointment of an interim will be taken up in a closed session to begin at 5 p.m. Monday, as well as the city manager’s “dismissal/release.”

“As early as Monday, there should be candidates coming before the City Council to look over,” Tinajero said.

City Council members said they want to see community participation in the search for a replacement.

“My goal and hope is that we have a broad search that will include the participation of stakeholders, residents and anyone else interested in the position,” Councilman Vincent F. Sarmiento said.

City Council members Thursday said they couldn’t discuss details of the agreement. Councilman David Benavides said Walters would be paid in his new role. He described it as “not technically a full-time position” but that duties would include representing the city on regional law enforcement boards.

The announcement marked a dramatic turning point in a swirl of events at City Hall that began Dec. 27, when the City Council held a special meeting, on 24-hour notice, of a personnel evaluation of Walters. Two more closed sessions followed, as well as hours of comments at recent meetings from his supporters.

Walters was appointed to the interim city manager position when David Ream left the city in May 2011 after serving as city manager about 25 years. Walters was chief of police at the time.

As police chief, he had been receiving $223,284, plus benefits. By mid-2012 in his dual role, he was receiving a salary is $253,140.

The City Council in June appointed Walters as city manager and to the new, unpaid position of police commissioner, which allowed him to keep his peace officer status.

It’s unclear how much the change in the city manager’s office will cost the city, and details need to be ironed out, Tinajero said.

Benavides noted that while there will be a financial impact, the city has saved money with the lack of a permanent police chief and because of an unfilled assistant city manager position.

Walters’ contract allowed for him to return to the position of police chief, a civil service position. In place since August as acting police chief is Carlos Rojas, who is also deputy chief for field operations.

City leaders will decide how to deal with the police chief’s position once they’ve made a decision on how to proceed with the city manager’s slot, Tinajero said.

Under the terms of Walters’ contract, if he chose not to return as chief, he would get severance pay of one year’s base salary – $265,000 – or three years, eight months of military service added to his retirement benefits.

Either way, he would get an estimated $100,000 in unused leave. Sarmiento said he hoped a way could be worked out to have Walters return as chief, both for his talent and in the interest of the city’s bottom line.

“I’ve always thought that Paul has been an exceptional talent as a top law enforcement officer,” Sarmiento said. “That would be something that I’d like to see, but obviously the option lies with him. … It makes a lot of fiscal sense to have him return as police chief. It would prevent us from having to expend additional funds that we don’t have.”

When they hired him as top administrator, City Council members credited Walters with leading the city, then in dire straits financially, toward a balanced 2012-13 budget. With measures that included contracting with the Orange County Fire Authority for fire services and concessions from employee groups, the city was able to close a $30 million budget gap.

By the time the November election took place, it was clear that a shift was taking place. A council majority dubbed the “Santa Ana spring” lined up behind Benavides in his bid to unseat Pulido, who won re-election, and also backed Roman A. Reyna, a Santa Ana Unified trustee who won the Ward 5 seat. Benavides called it a “shift in culture at City Hall” aimed at decentralizing power.

The majority, which included Benavides, Tinajero, Michele Martinez and Sarmiento, began chipping away at the mayor’s influence. They placed on the November ballot a measure that voters approved, placing term limits on the mayor’s office. They asserted that City Hall staff defers to the mayor, when there are seven votes on the council. Some also expressed regret about not having finished a national search for a city manager, contending that Pulido had pushed for Walters’ appointment.

Four members called for a closed-door meeting that was held two days after Christmas to discuss the city manager’s performance. On a 6-1 vote Jan. 22, the council, with Pulido dissenting, directed city staff to work toward releasing Walters from his contract.

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